The EU dairy sector is facing a period of significant changes that are due to three major decisions: the EU enlargement, the Luxembourg reform and on-going WTO negotiations. To evaluate the impact of such changes we developed a model of the EU and world dairy industry. The model is composed of two modules that interact: a milk and beef supply module and a dairy industry module. In this paper we present the model and focus on elements that are crucial for a better understanding of the impact of reforms: quota rents in the EU, evolution of production in the new member states and trade policy.